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Financing Constraints and Maintenance Investments: Evidence from Apartments

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Abstract

This paper studies whether renters bear the costs of building financing constraints in the form of reduced maintenance. Using a novel data set combining housing code violations from forty-five U.S. cities with apartment financing information, I show more financially constrained buildings incur more code violations. I then exploit a natural experiment, effectively reducing financial resources for some New York City rent-stabilized buildings. Following the shock, code violations increase for affected buildings relative to controls, and the effect is concentrated among more financially constrained buildings. The results are consistent with financing constraints reducing maintenance.

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  • Lee Seltzer, 2021. "Financing Constraints and Maintenance Investments: Evidence from Apartments," Staff Reports 1000, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:93551
    Note: Previous title: “The Effects of Leverage on Investments in Maintenance: Evidence from Apartments"; Revised December 2022, February 2023.
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    More about this item

    Keywords

    corporate finance; commercial real estate; housing code violations;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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